Open House: Saturday, August 27, from 12 to 3

The Summer Market: The Summer Market has been the hottest since the heydays of housing prior to the Great Recession.

This year has been quite a bit different than a typical summer cycle as demand increased by 5% in the past month. It feels like June, the tail end of the Spring Market, and not at all a typical summer

As expected, the Orange County housing market slowed in July a bit, transitioning from the red hot Spring Market to the beginning of the Summer Market. It was as if housing downshifted a gear, from 5th to 4th; it was still cruising, just not as fast as the spring. August typically looks a lot like July, maybe increasing a smidgeon, but still slower than the peak of the real estate market, March through mid-June. This cyclical phenomenon is easily explained by logically looking at the timing of the year. There are plenty of summertime distractions, especially in Southern California, from splashing around in the waves to traveling on the annual family vacation. The distractions lead to less buyer activity and demand drops. That’s the typical, annual real estate cycle in Orange County. Spring is the busiest time of the year. Summer is the second busiest. Then, there is the Fall and Winter Markets, where demand continues to downshift until it drops to its lowest level of the year by the end of December.

This year has been quite a bit different as demand increased by 5% in the past month. It feels like June, the tail end of the Spring Market, and not at all a typical summer. Demand, the number of new pending sales over the prior month, increased from 2,783 to 2,935 in the past month. Compare that to last year at this time when demand decreased by 2% from 2,810 to 2,762 (6% less than today’s level). Demand has not been this high since 2012 when it reached 3,544 pending sales; however, 17% were short sales that took a very long time to sell and often never closed. Today, only 1.2% of demand are short sales. Stripping short sales from demand, the last time it was this high dates all the way back to 2005, prior to the great recession.

Many may wonder why housing is so hot this summer. It took the market a while to get to this point. Housing has healed. Foreclosures and short sales are scary stories from the past, currently representing less than 3% of all closed sales. In 2012, they represented 31%. Now that housing has been restored and distressed properties are only an asterisk, the market has been blossoming. Throw in rock bottom interest rates, even lower than last year, and you have a recipe for strong demand. And, it does not look like interest rates are going anywhere fast. The Federal Reserve raised the short term rate for the first time in nine years back in December of last year. They hinted at four more hikes in 2016. So far, NOTHING. It doesn’t appear that there will be a change until December, if at all.

Low interest rates are only part of the reason for hot demand. This year, like every year since 2008, fewer homeowners are opting to sell. There are 30% fewer homes on the market compared to 2000 through 2007. People are staying in their homes a lot longer and are just not moving. On average, the current turnover rate for homeowners is 23 years. That’s a far cry from the days of lore, prior to the Great Recession, when homeowners moved much more frequently.

With a low supply of homes and strong demand, it’s no wonder that there’s a heat wave in housing.

Luxury End: Luxury demand has increased by 11% in the past month.

Demand for homes above $1 million reached a height at the start of May of 542 pending sales. After dropping by 19% by mid-July, totaling 436, it has climbed its way back to 483 pending sales, an 11% increase.

The peak in the Orange County luxury inventory occurred a month ago at 2,756 homes. Since then, the inventory of homes above $1 million has dropped by 3% and now totals 2,666. With elevated demand and fewer luxury homes coming on the market, look for the trend in a falling luxury inventory to continue.

For homes priced between $1 million to $1.5 million, the expected market time dropped from 120 days to 114 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time decreased slightly from 162 days to 159 days. For homes priced above $2 million, the expected market time dropped from 334 days to 304 days.

Active Inventory: The inventory appears to have peaked early.

Typically, the active inventory peaks from mid to late August. But, with stronger demand for this time of year, the inventory has actually been falling over the prior month. More homes placed in escrow means fewer homes that remain within the active inventory. So, the peak occurred in mid-July at 7,329 homes and has since dropped by 34 homes to 7,295.

Last year there were 128 fewer homes on the market, 2% less, totaling 7,167.

Orange County Housing Market Summary:

Typically, the active inventory peaks in August, but this year it peaked in mid-July and has since dropped by 34 homes, now totaling 7,295. There are 128 more homes on the market compared to last year at this time.

There are 19% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 9% as well. As home values continue to rise, this range is slowly vanishing.

Demand, the number of pending sales over the prior month, increased by 2% from 2,866 to 2,935 in the past two weeks. Demand was at 2,762 last year, 6% less than today. The average pending price is $790,569.

The average list price for all of Orange County is $1.4 million.

For homes priced below $750,000, the market is HOT with an expected market time of just 50 days. This range represents 45% of the active inventory and 67% of demand.

For homes priced between $750,000 and $1 million, the expected market time is 84 days, a slight seller’s market (between 60 and 90 days). A slight seller’s market is one with very little appreciation, but sellers still get to call more of the shots during negotiation. This range represents 19% of the active inventory and 17% of demand.

For luxury homes priced between $1 million to $1.5 million, the expected market time is at 114 days, decreasing by 6 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time dropped slightly from 162 days to 159 days. For luxury homes priced above $2 million, the expected market time dropped from 334 days to 304 days. The luxury end, all homes above $1 million, accounts for 36% of the inventory and only 16% of demand.

The expected market time for all homes in Orange County decreased from 77 to 75 days in the past couple of weeks, a slight seller’s market.

Distressed homes, both short sales and foreclosures combined, make up only 1.8% of all listings and 2.8% of demand. There are 45 foreclosures and 85 short sales available to purchase today, that’s 130 total distressed homes on the active market, dropping by 6 in the past two weeks.

There were 2,820 closed sales in July, a 9% drop from June and 13% fewer than last year’s 3,243 closings. The sales to list price ratio was 97.5%. Foreclosures accounted for 1% of all closed sales and short sales accounted for 1.7%. That means that 97.3% of all sales were good ol’ fashioned equity sellers.

Different Markets: Even though Orange County as a whole is HOT, there are plenty of cities and price ranges that are not.

It is not uncommon to hear a REALTOR® from one area express how the market is “dead,” while a REALTOR® from another area exclaims how they had tons of showings and homes are flying off the market. Yet, they are both right. The problem is that we all tend to focus on Orange County as a whole. There are 34 cities and 14 unincorporated areas. Orange County is HUGE. As a result, some cities come with a higher price tag, and others are much more affordable.

It is price that determines whether a market is hot or cold. Detached homes priced below $750,000 are hot. Condominiums priced below $500,000 are hot too. A detached home priced at $680,000 is going to attract a lot more attention than a home priced at $1.5 million. As prices rise, the pool of buyers able to purchase a home shrinks. So, it takes a lot longer to sell homes in the upper ranges compared to the lower ranges.

The hottest markets can be found in cities and areas where the vast majority of their homes are priced within the hottest price ranges. For example, Fountain Valley has an expected market time of only 26 days. There are 46 homes on the market today and only 6 are priced above $1 million, 13%. On the other hand, Ladera Ranch has an expected market time of 117 days. There are 171 homes on the market today and 69 homes priced above $1 million, 40%. And, at the far extreme, Laguna Beach has an expected market time of 337 days. There are 281 homes on the market and 265 are priced above $1 million, 94%.

The cities and areas with an expected market time of less than 60 days, the hottest markets, have an average list price of $669,000. About a third of Orange County is considered HOT. Conversely, the cities and areas with an expected market time of over 90 days, or three months, cumulatively have an average list price of $2.3 million. Nearly a third of Orange County is considered slow, or “dead” as some REALTORS® have described it.

For buyers looking to purchase in the lower price ranges, the market is hot. Lower priced homes attract a lot more attention and are more inclined to generate multiple offers and plenty of activity. Buyers need to be on their toes in order to be successful; “you snooze, you lose.” Yet, in the higher ranges, the market is a lot slower. Buyers can afford to be a bit more patient.

Sellers can price a bit more aggressively in the lower ranges. But, stretching the price too far, which many sellers initially do, results in less activity and no offers. In the upper ranges, sellers have their work cut out for them. Carefully pricing based upon recent comparable pending and closed sales is absolutely fundamental in order to achieve success. Sellers are not getting away with stretching the price in the upper ranges right now. There is just too much competition.

Luxury End: Luxury demand increased by 8% within the past couple of weeks.

Demand is calculated by the number of new pending sales over the prior month. Demand for homes above $1 million reached a height at the start of May of 542 pending sales. It dropped by 19% by mid-July and totaled 436. Within the past couple of weeks, it bounced back and added an additional 33 pending sales, an 8% increase.

The inventory of homes above $1 million has been increasing all year long. It has grown from 1,523 homes at the start of the year to 2,756 homes just two weeks ago, an increase of 81%. It finally dropped for the first time this year, shedding 34 homes, or 1%, in the past couple of weeks. It will be interesting to see where it goes from here. At the very least, the upward trend has taken a break.

For homes priced between $1 million to $1.5 million, the expected market time dropped from 141 days to 120 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time increased slightly from 158 days to 162 days. For homes priced above $2 million, the expected market time dropped from 345 days to 334 days.

Active Inventory: The inventory dropped for the first time this year.

The active inventory shed 12 homes in the past two weeks and now sits at 7,317 homes. That’s the first time the active inventory dropped this year. The inventory typically peaks in mid to late August, so it will be interesting to see if Orange County just experienced an early peak, or if there’s a little more room for growth in the coming weeks. It will most likely grow a bit from here. The inventory is having a hard time continuing its trend in growth because demand is a lot stronger right now than it has been in years. More homes placed in escrow means fewer homes that remain within the active inventory.

Last year there were 201 fewer homes on the market, 3% less.

Demand: In the past two-weeks demand increased by 3%.

Demand, the number of new pending sales over the prior month, increased by 3%, or 83 homes, and now totals 2,866 pending sales, its highest level for this time of year since 2012. The low interest rate environment has helped fuel the surge in demand. For perspective, demand is 10% off of its start of May peak of 3,196 pending sales. The expected market time dropped from 79 days two weeks ago to 77 days today.

Last year at this time demand was at 2,698 pending sales, 168 fewer than today, and the expected market time was 79 days.

Orange County Housing Market Summary:

The active inventory dropped for the first time this year, shedding 12 homes in the past two weeks and now totals 7,317 homes. There are 201 more homes compared to last year at this time.

There are 18% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 13% as well. As home values continue to rise, this range is slowly disappearing.

Demand, the number of pending sales over the prior month, increasedby 3% from 2,783 to 2,866 in the past two weeks. Demand was at 2,698 last year, 6% less than today. The average pending price is $798,617.

The average list price for all of Orange County is $1.5 million.

For homes priced below $750,000, the market is HOT with an expected market time of just 51 days. This range represents 44% of the active inventory and 66% of demand.

For homes priced between $750,000 and $1 million, the expected market time is 82 days, a slight seller’s market (between 60 and 90 days). A slight seller’s market is one with very little appreciation, but sellers still get to call more of the shots during negotiation. This range represents 19% of the active inventory and 18% of demand.

For luxury homes priced between $1 million to $2 million, the expected market time is at 131 days, decreasing by 15 days in the past couple of weeks. For luxury homes priced above $2 million, the expected market time dropped from 345 days to 334 days. The luxury end, all homes above $1 million, accounts for 37% of the inventory and only 16% of demand.

The expected market time for all homes in Orange Countydecreased from 79 to 77 days in the past couple of weeks, a slight seller’s market.

Distressed homes, both short sales and foreclosures combined, make up only 1.9% of all listings and 3.4% of demand. There are 48 foreclosures and 88 short sales available to purchase today, that’s 136 total distressed homes on the active market, an increase of 8 in the past two weeks.

There were 3,116 closed sales in June, a 3% increase over May and 1% fewer than last year’s 3,141 closings. The sales to list price ratio was 97.7%. Foreclosures accounted for 1.4% of all closed sales and short sales accounted for 1.2%. That means that 97.4% of all sales were good ol’ fashioned equity sellers.

Still a ‘sellers’ market but the summer cycle is slowing things down

In the first six months of this year 185 homes were sold compared with 200 in the previous year, a drop of a little less than 10%.

The number of Pending Sales is 51 about 15% lower than in 2015.

The current number of Active Listings is 272 an increase of 10% from the previous month and more than 15% from the previous year. This number also represents the highest number of Active Listings since October of 2011, almost five years ago.

Looking at the closed sales for the last month more than 72% of the sales were below $2,000,000. Translating this data: Sales are off especially at the higher end of the market with inventory increasing rapidly. If you have a home priced above $2,000,000 that has been on the market for more than 30 days it is time to consider the price.

The active inventory added an additional 225 homes in the past two weeks and now totals 7,329 homes, a level not seen since October 2014. There are 394 more homes compared to last year at this time.

There are 17% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 13% as well. As home values continue to rise, this range is slowly disappearing.

Demand, the number of pending sales over the prior month, decreased from 2,887 to 2,783 in the past two weeks, a 4% drop. Demand was at 2,810 last year, 1% more than today. The average pending price is $779,417.

The average list price for all of Orange County dropped from $1.5 million two weeks ago to $1.4 million today.

For homes priced below $750,000, the market is HOT with an expected market time of just 51 days. This range represents 44% of the active inventory and 68% of demand.

For homes priced between $750,000 and $1 million, the expected market time is 91 days, a balanced market that does not favor buyers or sellers. This range represents 19% of the active inventory and 16% of demand.

For luxury homes priced between $1 million to $2 million, the expected market time is at 146 days, decreasing by 2 days in the past couple of weeks. For luxury homes priced above $2 million, the expected market time increased from 322 days to 345 days. The luxury end, all homes above $1 million, accounts for 38% of the inventory and only 16% of demand.

The expected market time for all homes in Orange County increased from 74 to 79 days in the past month, a slight seller’s market that is pushing its way to a balanced market, 90 to 120 days, that does not favor buyers or sellers.

Distressed homes, both short sales and foreclosures combined, make up only 1.7% of all listings and 4.1% of demand. There are 46 foreclosures and 82 short sales available to purchase today, that’s 128 total distressed homes on the active market, a drop of 11 in the past two weeks and the lowest level since early 2007.

There were 3,116 closed sales in June, a 3% increase over May and 1% fewer than last year’s 3,141 closings. The sales to list price ratio was 97.7%. Foreclosures accounted for 1.4% of all closed sales and short sales accounted for 1.2%. That means that 97.4% of all sales were good ol’ fashioned equity sellers.